Senate advances bill to tax Internet sales

WASHINGTON -- The Senate moved closer Thursday to passing a bill to tax purchases made over the Internet. But a final vote in the Senate was delayed until senators return from a weeklong vacation.

Although opponents hope senators will hear from angry constituents over the next week, they have a steep hill to climb to defeat the bill in the Senate.

The Senate voted 63-30 Thursday to end debate on the bill, setting up a final Senate vote to pass the bill on May 6. The final vote will only require a majority to pass the bill, so 14 supporters would have to flip to stop it.

President Barack Obama supports the bill, but it faces an uncertain fate in the House, where some Republicans consider it a tax increase.

WASHINGTON, DC - APRIL 23: Senate Majority Whip Richard Durbin (D-IL) (L) speaks during a news conference about the Marketplace Fairness Act with (L-R) Sen. Mike Enzi (R-WY), Peter Sides of the Robert M. Sides Family Music Center and Sen. Heidi Heitkamp (D-ND) in the Dirksen Senate Office Building on Capitol Hill April 23, 2013 in Washington, DC. According to the bill's authors, the proposed legislation would provide states with the authority to require out-of-state retailers to collect and remit tax on purchases shipped into the state, allowing brick-and-mortar retailers to compete with online retailers. (Photo by Chip Somodevilla/Getty Images)
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Chip Somodevilla
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The bill would empower states to require online retailers to collect state and local sales taxes for purchases made over the Internet. Under the bill, the sales taxes would be sent to the states where a shopper lives.

Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving Internet retailers an advantage over brick-and-mortar stores.

Retailers who have lobbied in favor of the bill celebrated Thursday's vote.

"The special treatment of big online businesses at the expense of retailers on Main Street will soon be a thing of the past," said Bill Hughes of the Retail Industry Leaders Association. "The overwhelmingly bipartisan support for leveling the playing field is rare in today's political environment and paves the way for a level playing field once and for all."

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A handful of senators from states without sales taxes opposed the bill, with Sen. Ron Wyden, D-Ore., leading the fight against it. Oregon, Montana, New Hampshire and Delaware have no sales taxes, though the two senators from Delaware support the bill.

"It's coercive. It requires a number of states to collect the taxes of other states thousands of miles away against their will," Wyden said in an interview. "It's discrimination because this forces some people online to carry out responsibilities that brick and mortar retailers do not have to do."

Wyden said the bill also gives an advantage to foreign retailers. Supporters say the bill treats foreign retailers the same as domestic ones, but opponents question the ability of states to enforce state tax laws on companies based in other countries.

Supporters say the bill is about fairness for local businesses that already collect sales taxes, and lost revenue for states. Opponents say the bill would impose complicated regulations on retailers and doesn't have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt.

Many of the nation's governors -- Republicans and Democrats -- have been lobbying the federal government for years for the authority to collect sales taxes from online sales.

The issue is getting bigger for states as more people make purchases online. Last year, Internet sales in the U.S. totaled $226 billion, up nearly 16 percent from the previous year, according to Commerce Department estimates.

The National Conference of State Legislatures estimates that states lost $23 billion last year because they couldn't collect taxes on out-of-state sales.

The bill pits brick-and-mortar stores like Wal-Mart against online services such as eBay. The National Retail federation supports it. And Amazon.com, which initially fought efforts in some states to make it collect sales taxes, supports it, too.

The bill also gets support from many Republicans who have pledged not to increase taxes. The bill's main sponsor is Sen. Mike Enzi, a conservative Republican from Wyoming. He is working closely with Sen. Dick Durbin, a liberal Democrat from Illinois.

Enzi and Durbin say the bill doesn't raise taxes. Instead, they say, it gives states a mechanism to enforce current taxes.

In many states, shoppers are required to pay unpaid sales taxes when they file state tax returns. But governors complain that few people comply.

Sen. Chris Coons, D-Del., said he supports the bill in part because tax-free Internet sales are eating into sales by Delaware retailers.

"In our region, we've long benefited from significant commercial sales from residents of Maryland, of New Jersey, Pennsylvania and elsewhere, who come to Delaware to shop because we're a tax-free state," Coons said. "Over time, the benefit of that has eroded as folks discovered that they could buy the same things online without paying sales tax from home."

He noted that the bill would not require anyone from Delaware to pay sales taxes.